Stocks fall sharply as rising Treasury yields raise inflation fears

The stock market took steep losses Thursday as a sharp increase in Treasury bond yields drove investors away from high-priced shares of companies that boomed throughout the pandemic.

The Dow Jones Industrial Average fell 1.8 percent, losing just under 560 points on the day. The S&P 500 fell 2.5 percent, and a rout in technology shares pushed the Nasdaq to a loss of 3.5 percent.

Rising Treasury yields, which often reflect fears of inflation, have caused volatility across the stock market this week. 

Some Wall Street traders have grown increasingly anxious about the prospects for inflation and how the Federal Reserve will respond to it as President Biden shepherds his $1.9 trillion coronavirus aid bill through Congress with the end of the pandemic within sight.

Inflation as measured by the personal consumption expenditures price index minus food and energy, the Fed’s preferred metric, was 1.5 percent between December 2019 and 2020, 0.5 percentage points below the bank’s target range.

Even so, many Republicans, some investors and a handful of liberal economists have expressed fears that inflation could rise to dangerous heights with another injection of aid as the U.S. peels back coronavirus-related restrictions.

Fed Chair Jerome Powell, a Republican, and Treasury Secretary Janet Yellen, his Democratic predecessor, have both insisted that the U.S. faces far greater dangers from failing to provide enough aid to the deeply damaged economy. Powell also told lawmakers this week that rising Treasury yields and commodity prices should be seen as a reflection of confidence in the economy’s upcoming rebound, not a sign of inflation panic.

“We’ve averaged less than 2 percent inflation for more than the last 25 years,” he said Tuesday.

“Inflation dynamics do change over time, but they don’t change on a dime, so we don’t really see how a burst of fiscal support or spending that doesn’t last for many years would actually change those inflation dynamics,” he said.

As the rest of the market faltered, shares of GameStop surged Thursday as the stock market on the whole faltered and Treasury yields continued their climb.

GameStop stock was up more than 70 percent as the market opened Thursday before closing at $108 per share, a roughly 19 percent increase from Wednesday’s close. Shares of the struggling retailer rose more than 100 percent Wednesday, forcing exchange officials to halt trading of its stock.

The GameStop frenzy kicked back into gear late last week after Keith Gill — the Reddit-famous trader credited for starting the rally — doubled his investment in the company. The recent departure of former chief financial officer Jim Bell has also rekindled interest in GameStop’s future.

Updated at 5:20 p.m.